2013 (7) TMI 810 - HC - Income Tax

Rejection of account book - Difference in closing and opening stock - IT authorities rejected books of accounts on basis of reduced profit rate - Tribunal upheld rejection of books - Held that - Appellant is not maintaining accounts for providing different types of raw material to the weavers of different price range - Assessee could not explain as to why the rate of purchase varied and the correlation between the consumption and production - The Income Tax Authorities have not rejected the books of accounts only on the ground of reduced profit rate - Sufficient reason other than reduced profit rate has been given - Decided against Assessee.

Summary

Issues:
1. Rejection of account books based on discrepancies in maintenance of accounts.
2. Disapproval of accounting method due to discrepancies in gross profit rate.
3. Lack of satisfaction with the correctness or completeness of the accounts.
4. Doubt and disbelief in the correctness of the books of accounts based on extraneous considerations.
5. Comparison with previous assessment years regarding the acceptance/rejection of account books.

Issue 1: Rejection of account books based on discrepancies in maintenance of accounts:
The Tribunal upheld the rejection of the account books due to various reasons, including discrepancies in the manufacturing process, lack of explanation for raw material usage, different purchase rates for raw materials, absence of records for the variety of yarn, discrepancies in stock records, and unavailability of evidence for claimed losses. The appellant argued that the Assessing Officer did not disapprove the accounting method but highlighted discrepancies leading to the rejection of accounts. The appellant's reliance on a previous case regarding low profit not being sufficient for rejection of account books was dismissed by the court. The court examined the reasons provided by the Assessing Officer for rejecting the books of account, emphasizing discrepancies in raw material usage, quality variations in products, and lack of correlation between consumption and production.

Issue 2: Disapproval of accounting method due to discrepancies in gross profit rate:
The Assessing Officer rejected the account books not solely based on low profit but also due to various discrepancies in the maintenance of accounts. The appellant's argument that the rejection was primarily due to a decrease in gross profit rate was refuted by the court. The court noted that the rejection was based on substantial reasons related to the manufacturing process, raw material usage, quality variations, and lack of correlation between consumption and production. The court concluded that the reasons provided by the Income Tax Authorities for rejecting the books of accounts were valid and not solely reliant on the reduced profit rate.

Issue 3: Lack of satisfaction with the correctness or completeness of the accounts:
The appellant raised concerns regarding the lack of findings or reasons for rejecting the correctness or completeness of the accounts. However, the court found that the Assessing Officer had provided detailed reasons for rejecting the account books, including discrepancies in raw material usage, quality variations, and lack of correlation between consumption and production. The court emphasized that the rejection was not solely based on low profit but on multiple discrepancies in the maintenance of accounts.

Issue 4: Doubt and disbelief in the correctness of the books of accounts based on extraneous considerations:
The appellant argued that the rejection of the account books was based on extraneous considerations, presumption, and conjectures. However, the court found that the rejection was supported by concrete reasons related to discrepancies in the manufacturing process, raw material usage, quality variations, and lack of correlation between consumption and production. The court dismissed the appellant's claim of disbelief in the correctness of the books of accounts purely on extraneous considerations.

Issue 5: Comparison with previous assessment years regarding the acceptance/rejection of account books:
The appellant questioned the Tribunal's decision to reject the books of accounts for the current assessment year when the same Tribunal had previously accepted the books for the preceding year. The court examined the reasons provided by the Assessing Officer for rejecting the account books for the current year, emphasizing discrepancies in raw material usage, quality variations, and lack of correlation between consumption and production. The court concluded that the rejection was based on valid reasons and factual findings, dismissing the appeal for not raising substantial questions of law for consideration.

In conclusion, the High Court dismissed the income tax appeal, upholding the rejection of the account books for the assessment year 2004-05 based on substantial reasons provided by the Assessing Officer, CIT (A), and ITAT. The rejection was not solely due to low profit but stemmed from discrepancies in the manufacturing process, raw material usage, quality variations, and lack of correlation between consumption and production. The court found no substantial questions of law raised in the appeal, affirming the rejection of the account books.